Considering REIT investment?
The real estate industry is one of the most profitable business ventures.
While most people understand real estate from a point of investing in houses (See 2017 top trends), there are various other aspects of the same that are just as profitable. Simply put, REIT is an avenue for investing in real estate without actually owning rental properties.
How it works
The main method of investing in these trusts is by either owning properties directly or investing in mortgages and other mortgage-related securities.
REITs are available in a number of sectors including healthcare and retail industries among many others. Thus, the best way of investing in REITs is by trading across various sectors.
Let’s dive in.
The Different Options For REIT Investment
The main method of investing in these trusts is by either owning properties directly or investing in mortgages and other mortgage-related securities. REITs are available in a number of sectors including healthcare and retail industries among many others. Thus, the best way of investing in REITs is by trading across various sectors.
This way, the probability of profitability is increased. There isn’t much of variety on offer when it comes to the exchange-funded funds (Jayaraman, 2014). There are roughly over 200 REITs trading on U.S exchanges but there are various ways in which one can divide the sector and put it in some unique packages.
Some of the funds invest only in the most feasible REITs while others invest broadly in REITs. Of course, exhaustively, every REIT fund cannot be analyzed but below is a complete analysis of some of the best funds.
Vanguard REIT ETF
This is the industry’s leader in terms of assets with a comparatively cheaper Estate Trust Fund. The best thing is that it’s the investor who enjoys the attractive dividends given that the average expense ratio stands at 0.12%. The case for the above REIT is very simple. The main investment platform is the equity REITS and it has a bias for large issuers. It does not avoid other forms of hybrid
Thus, this can be summed up as a ‘large-cap’ REIT ETF. It does not avoid other forms of hybrid REITS which own property and other alternative assets like mortgages.
As of 30th April 2016 statistics, the fund held positions in 150 different REITs.
These REITs were further diversified according to the properties they held. However, retail REITs make up the largest percentage taking up to 24% of the entire fund. Among conservative investors who like having an extra yield while at the same time avoiding the risk of highest-yielding mortgage and hybrid REITs which are
However, retail REITs make up the largest percentage taking up to 24% of the entire fund. Among conservative investors who like having an extra yield while at the same time avoiding the risk of highest-yielding mortgage and hybrid REITs which are riskier, this fund is the best alternative.
Omega Healthcare Investors Inc. (OHI)
The above is a REIT which invests in healthcare facilities with particular emphasis on the long-term prospective facilities. The main countries are the United States and the United Kingdom which tend to have stable healthcare facilities. It provides lease or mortgage financing to operators of skilled nursing facilities (SNFs), assisted living facilities (ALFs), independent living facilities (ILFs), and rehabilitation and acute care facilities.
Mainly healthcare facilities
As of 31st December 2015 statistics, the company’s investment base boasted of 949 healthcare facilities located in both the U.S and the U.K but which were operated by 83 third-party operators. These third-party operators comprised of 782 SNFs, 85 ALFs, 16 specialty facilities and one medical office building. They had fixed-rate mortgages on 56 SNFs and 2 ALFs.
SPDR Dow Jones ETF (RWR)
The RWR is a U.S REIT ETF with a broad base. However, the price of one is a little higher in comparison to some of the top stock holdings. SPG makes up nearly 10 % of the total fund, with Public Storage just a little more than 5 % of Equity Residential and PLD each taking up roughly over 3%. In this case, the industrial office-focused trusts enjoy about 25% exposure, retail enjoys 20% while residential has about 20% exposure. The fund has about 96 holdings in its entire investment platform.
Residential REIT Investing
The fund is more inclined towards residential REIT since 17% of the total holdings are concentrated in apartment buildings. Regional malls are up next with a 15% allocation while health care takes up 11%. There is no single REIT that represents more than 10% of the total assets. RWR has an excellent track record achieving about 11% annual returns since its 2001 inception.
Five Oaks Investment Corp (OAKS)
This is a REIT focused on investing in financing and managing residential mortgage-backed securities and by extension, all mortgage-related investments. This firm is managed by Oak Circle Capital Partners LLC, which is an asset management firm based in the United States. The main source of capital for this REIT is the mortgages due to the heavy investment on mortgage-related investments.
iShares Global REIT ETF (REET)
U.S REITs make up about 63% of this fund. The rest of REET’s geography weight is in developed markets with Japan and Australia weighing in with at least 7% and the U.K at 6%. The only internationals holding top spots are France’s Unibail-Rodamco and Scentre Group. Apart from the Vanguard REIT discussed earlier, this REIT is the best platform for the investors seeking foreign exposure to a multinational level.
First Trust S&P REIT Index Fund (FRI)
The FRI is similar to VNQ. It holds a fairly diverse blend of REITs and general retail which stands at almost 25% of the total fund. It has 158 holdings while its top 10 holdings are almost the same in terms of percentage terms. The top holdings include Simon Property, Public Storage and Equity Residential.
iShares U.S RE ETF (IYR)
This REIT has a low expense ratio of about 0.43% which is significantly higher compared to VNQ. However, it’s more concentrated with 117 holdings in its portfolio. It is characterized by higher weighting towards specialized REITs and considerably low exposure to industrial REITs, hotels, and mortgage REITs. It has a higher dividend yield with a trailing 12-month yield of about 4.1%. This figure is more than twice that of the S&P 500 average dividend which stands at 2%.
This figure is more than twice that of the S&P 500 average dividend which stands at 2%. The higher total yield for the fund is generated by the higher-yield REITs in its portfolio. Additionally, it is also less volatile than the broader equity market with a beta value of 0.95 which means that for every 1% move in the S%P 500, it will move 0.95% which in a significant margin of safety.
iShares Cohen & Steers REIT ETF (ICF)
IICF is a diversified REIT ETF that invests in 30 trusts that are most dominant in their respective sectors. Almost 25% of the fund is directed towards retail with almost 20% each in specialized and residential trusts. However, the overall yield in this trust is among the lowest of the best REITs.
Schwab U.S REIT ETF
It is the cheapest REIT ETF on the market. The annual expense ratio is about 0.07% of the total fund assets. It uses the performance of the Dow Jones US Select REIT Index, which includes the equity REITs.Holding just 106 REITs, it’s the most concentrated ETF. It has a weighted market cap which implies there is a bias toward large-cap REITs. Only 10 companies contribute to a massive 41.1% of the overall fund assets. The largest holding, Simon Property Group, holds about 9.1% of the total fund assets.
This fund has the lowest yield which stands at a mere 2.6% due to the fact that there is more focus on market capitalization rather than investor returns. Despite the low yields, the fund’s five-year total return is almost equal to Vanguard’s returns, but it’s higher than iShares’ fund performance
Only 10 companies contribute to a massive 41.1% of the overall fund assets.
The largest holding, Simon Property Group, holds about 9.1% of the total fund assets. This fund has the lowest yield which stands at a mere 2.6% due to the fact that there is more focus on market capitalization rather than investor returns. Despite the low yields, the fund’s five-year total return is almost equal to Vanguard’s returns, but it’s higher than iShares’ fund performance
iShares Residential Real Estate Capped ETF (REZ)
REZ invests in equity REITs which are the trusts that own and operate real estate properties. The main focus is on residential-focused companies, but there are also interests in health care and self-storage trusts. The latter is the top holding with at least 11% of the fund, followed by healthcare REIT, Welltower Inc. (HCN), and apartment REIT Avalonbay Communities (AVB) which yield 5% and 3% percent respectively.
Select Income REIT (SIR)
SIR is a REIT that owns single tenant, net leased properties. As of late December 2015 statistics, the company had a total 119 properties. These properties consisted of 108 office and industrial properties spread across 34 states in the mainland U.S, together with an additional 11 properties located on the island of Oahu, HI.
Arbor Realty Trust Inc. (ABR)
Arbor Realty Trust – This REIT invests in a portfolio of structured finance assets. The major investment platforms include the real estate-related bridge and mezzanine loans, with slight interest in first mortgages, preferred equity, and direct equity. At some point, there’s direct acquisition of property. It is externally managed and advised by Arbor Commercial Mortgage, LLC, a commercial real estate finance company whose main focus is on debt and equity financing.
Markets outside the U.S have considerable growth prospects. The most prospective markets are those within the emerging markets and those in the early stages of economic recovery. To supplement the Vanguard REIT ETF exposure mentioned earlier, Vanguard offers the Vanguard Global ex-U.S Real Estate ETF. This has a sum total of $ 2 billion in assets with an average yield of 3.5%.
The expense ratio is a paltry 0.27% which is a considerable figure due to the fact that international funds are more costly compared to the domestic funds. Given the above statistics, this REIT is a good prospect for those willing to invest in markets outside the United States.
An Active Alternative : The PowerShares Active U.S Real Estate Portfolio (PSR)
Most ETFs simply mirror their underlying index, but a search revealed one ETF that looks to actively manage its REIT exposure. The above ETF aims to actively manage its REIT exposure. The PowerShares Active U.S. Real Estate Portfolio (PSR) has a solid rating. At 1.4% the yield is small with asset levels of $47 million.
The above represents some of the best REIT funds available in the market. As mentioned at the very beginning, REITs are simply aimed towards investing in real estate without actually owning properties. The odds for each fund have been analyzed and the intention is to enable possible REIT investors to make the best decisions based on facts.
Additionally, the decisions can also be based on the preferred economic sector and the preferred country for investment. All in all, REIT is a feasible alternative to real estate ownership.